Forming an LLC in Oregon can provide a number of legal benefits.
Freedom of Contract
The Oregon LLC Act gives LLC members contractual freedom to customize their contributions, rights, duties, and distributions of profits and losses in their operating agreement for the LLC. In addition, it gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, and it allows members to protect their control of an LLC set forth in the operating agreement. Since many businesses are not going to be customizing their LLC agreements, this may not be critical to you, but it is good to know if you ever need to modify the organizational documents for your Oregon LLC.
The Oregon LLC Act gives members contractual freedom to create voting and non-voting classes of membership and customize their capital contributions and shares of profits and losses. Section 63.185 provides that “[t]he profits and losses of a limited liability company shall be allocated among the members, and among classes of members, in the manner provided in the articles of organization or any operating agreement.” This means the articles of organization or an LLC agreement may not only govern the allocation of profits and losses, but may also govern the voting relationship among members. Members can use this flexibility to tailor their income streams and risks of loss and facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-voting interests.
Privacy for Owners
The Act does not require filing of members’ names. A “person” may organize an LLC by filing its articles of organization with the Oregon Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. Likewise, section 63.044 states organizers do not need to be members of an LLC. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s articles of organization.
Perpetual Duration
The Act provides for an LLC’s unlimited life. Section 63.077 states that every limited liability company has perpetual duration unless its articles of organization provide otherwise. An LLC’s existence can therefore outlive its members’ lifetimes.
Benefits for Business Partners
The Oregon LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 63.155 has a default rule that members in member-managed LLCs and managers in manager-managed LLCs owe limited fiduciary duties of loyalty and care. It limits the duty of loyalty to not competing with the LLC or taking a business opportunity away from the LLC, not dealing with the LLC in a manner adverse to it or on behalf of parties who have an interest that is adverse to it, and acting as a trustee of the LLC’s property. It limits the duty of care to “refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.”
The Act gives members and managers contractual freedom to “opt out” of most of the default rules, however, by including provisions in the articles of organization or an LLC agreement that modify the duties. Members and managers cannot completely eliminate the duty of loyalty or unreasonably reduce the duty of care, but they may (1) “[i]dentify specific types or categories of activities that do not violate the duty of loyalty,” and (2) “[s]pecify the number or percentage of members or … disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.” This second element is a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers.
The result is the Act protects both majority and minority members. It protects minority members because an LLC agreement may not completely eliminate fiduciary duties, even though it may identify activities that do not violate them and prescribe standards for measuring them. These provisions make minority interests safer investments and therefore more valuable.
The Act protects majority members because it provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its managers or members, or an entity in which they own an interest, if the contracts or transactions meet minimum disclosure, approval, or fairness requirements. These rules give majority members and the LLC certainty in business planning and the ability to take advantage of mutually beneficial opportunities.
Protections Against Unwanted Parties
The Oregon LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from assigning their membership interests. But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to participate in management or to become a member. Instead, the assignee may receive only the distributions to which the assignor would have been entitled, and a majority of the other members must consent to the assignee becoming a member. Section 63.259 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee of the membership interest.”
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